Nigeria's economy is in recovery mode

Entrepreneur and farmer Kofoworola Durosimi-Etti works in her greenhouse farm in Ikorodu on the outskirt of Lagos

JOHANNESBURG - NIGERIA'S economy expanded in the second quarter, ending its worst slump in 25 years as agricultural and oil output increased.

Gross domestic product of Africa’s largest crude producer grew 0.55percent in the three months to June from a year earlier, compared with a revised 0.9percent contraction in the first quarter, the Abuja-based National Bureau of Statistics said yesterday. The median of 10 economists’ estimates in a survey was for growth of 1.3percent.

This ends five straight quarters of contractions that also saw the economy decline 1.6percent last year, the first such drop since 1991. The International Monetary Fund forecasts growth of 0.8percent this year as output of oil climbs, and supply of foreign currency, needed by manufacturers to import inputs, continues to improve.

“While many will focus on the headline move back into positive territory, some of that optimism must necessarily be tempered,” Razia Khan, the head of macroeconomic research at Standard Chartered Bank in London, said. “This is not at all a robust GDP print. It still falls far short of the growth rates the Nigerian economy should be achieving.”

Expansion

Agriculture, which vies with industries as the second-biggest contributor to GDP, expanded 3percent in the quarter from a year earlier, the statistics agency said. Services, the largest sector at 54percent, rose 0.9percent. The oil industry climbed 1.6percent.

Nigerian authorities improved foreign-currency liquidity by introducing a trading window for portfolio investors at market-determined rates, and later by allowing commercial banks to quote the so-called Nafex rate that’s now close to pricing on the black market. Before this, the central bank regularly intervened to keep the naira at about 315 per dollar, even after months of abandoning a 197 to 199 peg.

The central bank has kept its main lending rate at a record high of 14percent since July 2016 to support the naira and to fight inflation that was at 16.1percent last month, still almost double the target.

Economists including Yvonne Mhango at Renaissance Capital see the central bank continuing a tight monetary-policy stance.

President Muhammadu Buhari, who returned to Nigeria August 20 after more than three months of sick leave in London, increased spending to a record 7.4 trillion naira (R265.36billion) this year.